Feds: Freedom knew about problems for years

Freedom Industries knew about serious problems with the spill-containment dikes at the company’s Elk River facility years before the leak in January 2014 that contaminated the drinking water supply for hundreds of thousands of Kanawha Valley residents, federal authorities allege in newly unsealed documents.

Freedom was “long aware” of “inadequacies” with the containment dike around Tank 396 — the one that leaked MCHM and other chemicals into the Elk on Jan. 9, 2014 — and also knew the tank was old, had not been properly inspected and needed to be replaced, according to an FBI affidavit made public late Wednesday in U.S. District Court.

“The containment area at the Etowah Facility within which Freedom stored MCHM was incapable of holding a significant chemical spill,” wrote FBI Special Agent Jim Lafferty. “There were numerous cracks in the dike wall. Moreover, at various spots along the dike wall, mortar had ended between and underneath the blocks, thus creating space through which liquid could leak.”

Lafferty’s 26-page affidavit was filed in support of an application for a search warrant federal officials sought in September to obtain computer records, a laptop computer and paper financial records from Freedom as part of their ongoing investigation of the chemical leak. U.S. Magistrate Judge Cheryl A. Eifert, in Huntington, approved the warrant on Sept. 12, 2014, and a copy of the warrant and Lafferty’s affidavit was unsealed Wednesday.

Late Thursday, state Attorney General Patrick Morrisey released a report that outlined similar findings regarding a long history of Freedom officials knowing about problems at the Elk River site, but not taking action to fix them.

The 49-page report said that “among the most disturbing findings” of the state investigation was that Freedom employees and outside consultants “warned of a potential catstrophic incident due to poor tank conditions and design problems for years, and in some cases offered solutions” that were never acted upon.

The new details from the FBI and from Morrisey’s office come as three of the six former Freedom Industries officials who have been charged with criminal violations concerning the leak and its aftermath were making court appearances.

In Charleston, former Freedom officials Dennis Farrell, William Tis and Gary Southern pleaded not guilty at arraignments before U.S. Magistrate Judge Dwane L. Tinsley.

The trio appeared in separate hearings held consecutively, and Tis gave Farrell a “thumbs up” sign as Tis walked from the front of the courtroom after entering his plea. Farrell, 58, of Charleston, and Tis, 60, of Verona, Pennsylvania, were released on $10,000 unsecured bail, and trial for all three men was tentatively scheduled for March 10.

Tinsley rejected a request by Assistant U.S. Attorney Phil Wright to force Southern to post a $500,000 secured bond to assure his appearance at trial. After initially being arrested at his home in Marco Island, Florida, based on a criminal complaint, Southern was released on $100,000 unsecured bail by a magistrate in nearby Fort Myers.

Wright said prosecutors were withdrawing a request that Southern be put on home confinement with a monitoring device after they discovered that “the monitoring system won’t work, given the size of his home.”

However, Wright said federal authorities remain concerned that Southern might flee, to avoid facing the charges against him. While Southern, Farrell and Tis were each charged with three misdemeanor counts of violating the Clean Water Act, the indictment against Southern alleges 10 additional felony counts based on the allegation that Southern lied about his role at Freedom to protect his personal wealth from civil litigation and Freedom’s bankruptcy proceeding. If convicted on all counts, Southern, 53, will face a statutory maximum of 68 years in prison.

Wright said prosecutors’ concerns were renewed more recently when they learned that Southern’s estimate of his personal assets had dropped from $16 million in January 2014 to $9 million in August 2014 and because Southern is not a U.S. citizen, “has no ties to West Virginia” and has a private pilot’s license. Wright said federal officials have learned that Southern made a $1.8 million tax payment to the Internal Revenue Service last year, but that the move still left authorities wondering how his assets had dropped by $4.2 million between January and August of last year.

Bob Allen, a Charleston lawyer representing Southern, objected to the government’s request for additional conditions on Southern’s release.

“I don’t know why the government is taking such a hard line on Mr. Southern,” Allen said.

Allen said that given the government’s moves to seize Southern’s assets, Southern would have a limited ability to post a secured bond. Allen said, for example, that the balance in Southern’s checking account had dropped to less than $100,000. Also, Allen noted that Southern already has appeared for at least two other hearings in the case and, unlike other Freedom officials, stayed in Charleston after the chemical leak, working at the company until he was removed by a bankruptcy court-appointed restructuring officer.

“The fact is, if he was going to cut and run and get away from this situation, he had every opportunity to do so,” Allen said. “This is not a guy who is going to run.”

Tinsley, noting that federal law requires bail for criminal defendants to contain as few restrictions as will assure appearance at trial and protect the community, declined to require Southern to post a secured bond, keeping his release set at the $100,000 unsecured bail previously set in Florida.

“The defendant is not a flight risk,” Tinsley said. “The defendant is not a danger to others or to the community.”

Another Freedom Industries official who was indicted, Charles E. Herzing, is scheduled to be arraigned Monday.

Court dates have not yet been set for Freedom Industries or for two other company officials, Michael Burdette and Robert Reynolds, on charges against them related to the MCHM leak, which the U.S. Chemical Safety Board has said appears to have been caused by a lack of inspections and maintenance on the facility’s aging chemical storage tanks. During a public meeting in Charleston last July, CSB investigators said they had found “extensive corrosion” in Tank 396 and other tanks at the facility, evidence of poor inspection practices and a lack of preventative actions at the site.

In his affidavit, Lafferty writes that, “Freedom, through certain of its key personnel, was long aware” of the “inadequacies” in the MCHM storage area’s containment dike.

“I have talked to employees who had worked for the Etowah Facility’s previous owner, before [Etowah River Terminal] purchased the site in 2001, and they have told me that they were aware of deficits in the dike wall at that time,” Lafferty wrote. “A company hired by Freedom to perform tank inspections in 2008 also noted the deteriorating condition of the dike wall, in particular in areas near the location of Tank 396, the tank from which the MCHM leaked. Nonetheless, Freedom never repaired the dike wall.”

Lafferty alleges that Freedom also failed to properly inspect Tank 396.

“Tank 396 was a riveted tank, a type of construction that had not been used for above-ground storage tanks for many years,” Lafferty wrote. “In 2008, when Freedom made arrangements to have all of the large tanks at the facility inspected, it deliberately excluded Tank 396 and the two other smaller tanks that were used to store MCHM, Tanks 395 and 397, which were also riveted tanks.”

Lafferty describes discussions he has had with Burdette, the former Freedom plant manager who was charged through an “information,” a procedure that typically means a defendant is cooperating with investigators and has or will reach a plea agreement.

“Burdette even stated that in 2008, almost seven years after Freedom first took possession of the Etowah Facility, that Freedom would get rid of Tanks 395, 396 and 397, that is, take them out of service, because they were old,” Lafferty writes. “Freedom, however, never took them out of service. Instead, Freedom continued to use them for MCHM storage.”

Lafferty writes that Freedom “also never had the riveted tanks, including Tank 396, subjected to any formal inspection to test the walls and floor for soundness, even though there were times after 2008 when the tanks were completely empty.

“Shortly after the MCHM spill was discovered on January 9, 2014, Burdette told an EPA special agent that Freedom did not inspect the MCHM tanks, other than just a visual look at the interior surfaces, and even though they had inspected the larger tanks because he ‘had just not gotten around to it.’”

In Morrisey’s report, state investigators said that Burdette wrote a memo in March 2010 that outlined inadequate drainage in the tank area and improper grading that allowed standing water to collect around the tanks, a situation Burdette said could affect tank integrity and “result in a potential catastrophic failure.”

“Evidence does not suggest that any affirmative action was ever taken to address the structural problems of the facility,” the Morrisey report says.

Reach Ken Ward Jr. at kward@wvgazette.com, 304-348-1702 or follow @kenwardjr on Twitter.

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